EPAct 179D Experts

"The least expensive kilowatt, is the one not used."

- Jacob Goldman

Logistics Industry: Energy Cost Reduction and Tax Savings

The UPS television commercials accompanied by a fun logistics jingle have
engagingly presented the core processes related to package and product
delivery. America's leading logistics companies are the arteries of commerce
that maintain the constant flow of goods from production to end uses.

Logistics companies consume tremendous amounts of fuel for air and truck
fleets and for their cavernous warehouse properties. New technologies are
enabling logistics companies to change fuel sources and greatly reduce
operating costs. Logistic companies that want to maintain market share with
America’s largest companies need to regularly reduce energy use.

The EPAct Section 179D Tax Opportunities

Pursuant to Energy Policy Act (EPAct) Section 179D, warehouse and
distribution center building owners or tenants making qualifying
energy-reducing investments in their new or existing locations can obtain
immediate tax deductions of up to $1.80 per square foot.

If the building project doesn't qualify for the maximum EPAct Section 179D
$1.80 per square foot immediate tax deduction, there are tax deductions of up
to $0.60 per square foot for each of the three major building subsystems:
lighting, HVAC, and the building envelope. The building envelope is every item
on the building’s exterior perimeter that touches the outside world
including roof, walls, insulation, doors, windows and foundation.

The table below illustrates the potential EPAct tax deductions available for
some of America’s largest logistics companies with energy efficient
building improvements.

Air Fleets

New fuel efficient aircraft use substantially less fuel than current
aircraft. The Boeing 787 Dreamliner uses 20% less fuel and produces 20% less
emissions than the average similar sized aircraft.1

In 2011 FedEx achieved a 13.8% reduction in aircraft emissions. As of May
2012 Fed Ex operates 660 aircraft and is committed to purchase 28 more
throughout 2012-2013. The company recently announced their initiatives in
efficiency which includes reducing flights and frequencies.

Over the next few years FedEx will purchase 19 Boeing 767 planes to replace
their current MD10s and A31-200s. They will also purchase 27 Boeing 767-300
freight planes. With 30% more fuel efficiency than their current planes, FedEx
can expect a 20% reduction in operating costs.2

FedEx also delayed the delivery of its 777 freight aircraft. This is
expected to result in lower overall costs and investment, a better utilization
of their MD-11 fleet for international flights, and significant long term fleet
efficiency.

In addition to fuel efficiency in aircraft, the aircraft hangers have been
installing energy efficient lighting to reduce operating costs.3

In 2011, FedEx installed a green roof at its 175,000 square foot
O’Hare International Airport cargo facility. They also have a 145,000
square foot hangar at Memphis International Airport and a 114,000 square foot
hangar at Chattanooga Airport.

UPS operates a fleet of over 560 aircraft. The company’s Worldport
aircraft hub, at 5.2 million square feet, is located in the Louisville
International airport. UPS also operates air hubs in CT, CA, PA, and IL as well
as a 535,000 square foot sorting facility at Memphis International
Airport.4

UPS’s 3.7 million square foot logistics campus is also located in
Louisville, KY. Logistics facilities, especially near major airports as such,
have very large square footage and are often able to obtain large EPAct
deductions.5

Truck Fleets

Truck fuel cost has also drastically improved from a combination of
efficiency, new fuel sources including Compressed Natural Gas (CNG), and new
technologies such as idling reduction.

Idling reduction involves the installation of a technology or device that
allows main engines to refrain from unnecessary long periods of idling using an
alternative technology. These devices can be installed on buses, trucks, cars,
marine vessels, and equipment. This idling reduction technology is also
designed to provide heat, AC, and electricity while in parked or idling, which
would normally require the operation of the main engine.6

UPS has begun using prototype vans that have achieved a 40% increase in fuel
efficiency compared to their traditional vans. The company expects to use these
vans on a wider scale and for high-mileage routes by 2013.7

FedEx has taken fuel efficient initiatives for their truck fleet. The
company has increased its green fleet by 18%, including 364 hybrid-electric
vehicles and 118 electric vehicles. “FedEx expects that over 35% of its
U.S. pick-up and delivery fleet will be equipped with 11,000 such vehicles by
the end of 2013.”2

Major Purchaser Supply Chain Sustainability Programs

Many purchasers of logistics services are driving energy efficiency
initiatives throughout their supply and encouraging logistics companies to
reduce energy costs and emissions.

The table below presents some of the major supply chain programs impacting
the logistics industry.

Conclusion

Perhaps more than any other industry, the logistics industry understands
what it means to reduce fuel costs. The large logistics companies also have
huge facilities where major energy cost savings and large EPAct tax savings are
readily achievable.